The following is an illustration of how to devise your budget (and get out of debt) once you have determined your dreams and objectives. I will give two examples that I hope will be helpful for you.
I have titled this type of spending plan as “tiered” since you prioritize and the money flows downward.
Most people have a list something like this:
Their dreams:
- Get out of debt–pay off student loans and credit card debt
- Quit my job and stay home
- Begin investing in real estate
- Start our own business
- Buy a ….
- Donate money
- Travel to Egypt
- Retire early
- Buy a new house
- Help (Mom, our son, Aunt Sue, etc.)
To illustrate let’s assume a family with income of $5,000/mo combined
First tier payments: the “gotta’s”: mortgage, insurance, utilities, auto expenses, minimum payments on credit cards and student loans.
- Balance remaining: $1800
Second tier payments: the dreams and loves.
They have decided their priorities in this area (and what the other dreams are contingent upon) are to get out of the credit card debt and begin to invest in real estate as real estate is a long term prospect in their plan.
They pay an extra $650 on the lowest balance/highest interest credit card and $550 toward a down payment on a rental property fund.
- Balance remaining: $600
Third tier payments: Groceries, clothes, dining out, entertainment, lunches (including required business lunches), household expenses, misc.
Before prioritizing this family was probably continuing to charge, and were spending all of their money on tiers one and three.
Now let’s imagine a single mom with two pre-school children.
She works as a bus driver making $12/hour.
Her dream is to start an online business. She has researched it, taken some classes, and wants to start an arts and crafts “how-to” site.
Her plan is to give away the designs and make her money on advertising and selling accessories and kits. (See BuildEazy.com as a good example of what she has in mind.) She is desperate to stay home with her kids and stop working crazy hours.
Her short term dream is to have a dependable car, pay off her credit card, and start her business. Long-term she wants a nice house her kids can grow up in.
- Income: $1775/mo
First tier payments: the “gotta’s”: rent, insurance, auto expenses, minimum payments on credit card, daycare, babysitting.
- Balance remaining: $635
Second tier payments: An extra $35 on credit card payment, $35 toward obtaining her domain name and sign up for her website hosting service, and she puts $200 in savings for a new used car.
- Balance remaining: $365
Third tier payments: groceries (to stretch her food dollars she and her mother have a membership at a warehouse store and they split bulk items), clothes (including a portion of her uniforms), toys and books for the kids (she hits garage sales and re-sale shops), entertainment, dining out.
Although these illustrations are very different in both instances it required a re-focusing to actually funnel money into areas that will, in time, bring monumental changes to their lives.
Flexibility keeps this approach of life planning flowing and functional. Steel beams are rigid, life bends!
If you have discovered helpful techniques to spread that money around, get out of debt, and still live an abundant life, please share them.
Face your Dreams, Embrace Your Loves
NOW HERE’S ONE OF MY FAVORITE QUOTES:
Even if you’re on the right track, you’ll get run over if you just sit there.
Will Rogers
Your comments are welcome.
